The critique of nationalism is that at it's worst it devolves into blind loyalty to the state and xenophobia. Communism demands absolute loyalty to the state by default. They don't hate outsiders; they just want to absorb them against their will like the Borg from Star Trek. How is that better?

Ironically, all communist regimes have been intensely nationalistic, because that is how the state gains support. Not to suggest that nationalism bad. In its true form, it is an identification with the nation and not the state, and opposition to the state when it acts against the interest of the nation - or indeed, other nations, as they also have a right to nationhood.

Capitalism rewards hard work and inginuity. It's not perfect and often unfair, but communism offers no rewards for high achievement at all. How is that better?

There is a third way between unregulated capitalism and communism/socialism.